What Is a TPSO? IRS Definition and 1099-K Reporting

A TPSO, or third-party settlement organization, is a payment app or online marketplace that sits between a buyer and a seller, holds the buyer’s money, and passes it to the seller after the transaction goes through. PayPal, Venmo, Cash App for Business, Stripe, Square, Etsy, and eBay all fall into this category. If you use one of these platforms to get paid for goods or services, it’s the TPSO’s job to track what you were paid and, once your activity crosses certain thresholds, report it to the IRS on Form 1099-K.¹

What Counts as a TPSO

Under federal tax law, a TPSO is the central platform in a network of third-party transactions that has a contractual obligation to pay the sellers in that network.² The IRS uses simpler language: a payment app or online marketplace.¹

You’ll occasionally see the acronym written out as “third-party service organization.” The IRS uses “settlement,” and that’s the legally precise term in a tax context.

One boundary is worth pinning down early. TPSOs are one of two kinds of “payment settlement entities” that file 1099-Ks. The other is a payment card network like Visa or Mastercard and the banks that process card transactions for merchants. If a customer pays you directly by credit, debit, or gift card, the card processor sends you a 1099-K with no minimum dollar amount at all.¹ The TPSO thresholds below don’t apply to those payments.

When a TPSO Sends You a 1099-K

A TPSO must send you a Form 1099-K when both of these are true in a calendar year: your gross payments through that platform exceed $20,000, and you had more than 200 transactions on it.³ Both conditions have to be met. $19,000 across 500 transactions doesn’t trigger a 1099-K, and neither does $25,000 across 150.

That threshold has moved around recently. The American Rescue Plan Act of 2021 dropped the reporting floor to $600 with no transaction minimum, but the IRS delayed enforcement for three consecutive tax years, and it never actually took effect. The One Big Beautiful Bill, signed into law in 2025, retroactively reversed the ARPA change and permanently reinstated the $20,000-and-200-transaction standard.³

A TPSO can still choose to send a 1099-K even if you don’t hit the thresholds. Some do this as internal policy. Getting the form doesn’t by itself mean you owe more tax; it means the payments were documented.¹

What the 1099-K Means for Your Taxes

The form doesn’t create a tax obligation. All income from selling goods or providing services must be reported whether or not a 1099-K arrives.¹ What the form does is tell the IRS what a platform paid you, so your return needs to account for it.

Where you report the money depends on what it was for. A single 1099-K can lump business income, personal item sales, and even non-taxable amounts into one gross figure, so you have to sort it out yourself.

Business or self-employment income goes on Schedule C (Form 1040). This covers freelance work, gig platform earnings, and regular sales of goods or services.⁴
Personal items you sold at a gain (more than you paid) are taxable. Report the profit on Schedule 1 (Form 1040).⁵
Personal items sold at a loss aren’t taxable, but you still need to show the 1099-K on your return so the IRS doesn’t treat the amount as unreported income. Schedule 1 is again the place, with an offsetting entry as described below.⁶

Personal Payments and 1099-Ks Received in Error

Money from friends and family — a birthday gift, splitting a dinner bill, a roommate’s share of rent — is not taxable and should never appear on a Form 1099-K.¹ Whenever your payment app gives you the option, mark these payments as personal rather than business to reduce the chance of a form being generated in error.

If you receive a 1099-K that includes amounts you shouldn’t owe tax on, contact the company listed in the upper-left corner of the form and ask for a correction. The IRS itself can’t fix your 1099-K, so calling them won’t help.⁶

When the TPSO won’t issue a corrected form in time, you can zero out the error on Schedule 1. Enter the erroneous amount on Part I, Line 8z with a note such as “Form 1099-K received in error,” then enter the same amount on Part II, Line 24z with the same description. The two entries cancel each other out, and your adjusted gross income isn’t affected.⁶

Backup Withholding on TPSO Payments

If you don’t give a TPSO a correct taxpayer identification number (your SSN, EIN, or ITIN), the platform is required to withhold 24% from your payments and send it straight to the IRS. This is backup withholding, and it keeps applying to future payments until the underlying issue is resolved.⁷

Backup withholding can also kick in if the IRS notifies a payer that you underreported interest or dividend income on a prior return, or if you failed to certify that you aren’t subject to withholding for underreporting.⁷ The simplest way to avoid it is to fill out Form W-9 when a platform asks for it and keep your taxpayer information current on every account where you get paid.

1
Internal Revenue Service. Understanding Your Form 1099-K
2
GovInfo. 26 USC 6050W – Returns Relating to Payments Made in Settlement of Payment Card and Third Party Network Transactions
3
Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One Big Beautiful Bill
4
Internal Revenue Service. Instructions for Schedule C (Form 1040) (2025)
5
Internal Revenue Service. What to Do With Form 1099-K
6
Internal Revenue Service. Form 1099-K FAQs – What to Do if You Receive a Form 1099-K
7
Internal Revenue Service. Backup Withholding